Why Tokenized Stocks Still Haven’t Taken Off (And When They Might)

Wall Street's blockchain experiment is stuck in first gear. Tokenized stocks—those digital twins of traditional equities—promised 24/7 trading, fractional ownership, and borderless markets. So why does the hype keep outpacing adoption?

The Liquidity Mirage

Despite slick marketing decks, most tokenized shares trade at spreads that'd make a penny-stock broker blush. The promised arbitrage between crypto and traditional markets? More like watching paint dry on a SEC filing.

Regulatory Limbo

Every compliance officer's nightmare: assets that live in both TradFi and DeFi worlds. Recent CFTC saber-rattling shows regulators still can't decide if these are securities, commodities, or some unholy hybrid.

The Killer App That Wasn't

Turns out crypto traders want moonshots—not synthetic Apple shares with KYC requirements. Meanwhile, institutional players treat blockchain rails like a PR stunt rather than infrastructure.

Don't count them out yet. When the next market crash hits, watch how fast legacy finance rediscovers its love for 'innovation'—just in time to offload risk onto crypto bagholders.

Limits overcome

Take KYC, for example. Though KYC rules are unlikely to go away, as they become standardized, instead of being restricted to trading with a tiny group of people who are using the exact same vendor and partner running the same KYC process, all the small liquidity pools will become interoperable, effectively becoming a larger liquidity pool. And with deeper liquidity will come market-makers willing to support 24x7 trading without any pricing penalty. Increasing regulatory maturity will probably enable voting rights, dividends, and the automation of withholding taxes as well.

All these steps will, in time, make tokenized stock trading largely comparable to traditional stock trading. If we go back to the music analogy that’s okay, but hardly a compelling reason to switch. It will appeal to those who have limited access to stocks today, but if you have on-chain assets and verified KYC, chances are good you can already obtain a bank account and a brokerage account. This means that parity with existing offerings will not be compelling.

We can already see where on-chain offerings are going, and it’s more than parity. The recent Robinhood announcement of a Layer-2 network on ethereum included the promise of tokenized access to private companies such as SpaceX and OpenAI. Beyond that, the ability to plug on-chain assets into DeFi services and use them as collateral or lend them out for added return will bring many users into the market.

Lastly, I think there is the potential to truly transform corporate governance. Despite several hundred years of experience, shareholder governance leaves a lot to be desired. Many owners fail to exercise any of their rights. It’s hardly surprising given we can barely keep up with real politics. But, with smart contracts, the ability to delegate your voting rights to experts you trust opens a whole new world of informed governance.

Early adoption is often driven by users with unique needs and a tolerance for risk. This is a perfect example of the whole crypto ecosystem, including users who have accumulated assets outside of the entire traditional financial system.

But, over time, we’re going to get from “because we can” to something much better. And, when that happens, the current $3-4 trillion in crypto assets and a few hundred billion in stablecoins will be dwarfed by the $200+ trillion in stocks and bonds that can come on-chain. It’s only a matter of time.

Disclaimer: These are the personal views of the author and do not represent the views of EY.